Ponzi scheme exit strategies

Recently, I posted about the psychology explaining how so many “sophisticated investors” could have been taken in by Bernard Madoff’s alleged $50 billion Ponzi scheme.

NYTimes.com economics editor Catherine Rampell wrote an interesting blog post examining the psychology of the schemers who run Ponzi schemes. Every Ponzi scheme is ultimately doomed to failure and exposure, she notes, because the con only works if you have an endless supply of fresh investors.

The schemer’s debt gets exponentially bigger as time goes on, and there’s no way to end the ploy. Unlike other crimes — murder, rape, jaywalking — this one requires a lifetime commitment, not just an afterlifetime commitment. You can’t just say you’re done, bury the evidence and move on. Ponzi schemes are self-perpetuating, and by their very nature, there is no such thing as “done.” Unless, of course, you go to jail. Or die.

Anyone sophisticated enough to design a Ponzi scheme — and con financially literate investors and government agents — must also be sophisticated enough to do the math here. So what could Ponzi perpetrators possibly expect their “exit strategy” to be?